Leighton directors resign amid board turmoil

Philip Wen

Leighton Holdings chairman Stephen Johns quit in protest after major shareholder Hochtief stared down a revolt from Leighton’s independent directors.

The directors were seeking to reclaim management control of Australia’s largest construction group, according to explosive letters obtained by Fairfax Media.

The once cordial relations between Leighton’s independent directors and 54 per cent shareholders Hochtief have become increasingly strained since the German group was taken over by Spanish construction giant Grupo ACS in a bitterly contested bid in 2011.

The flashpoint sparking Mr Johns’ resignation came when Hochtief executive chairman Marcelino Fernandez Verdes, a long-serving ACS executive and recent addition to Leighton’s board, interfered with the appointment of a new independent director.

In his letter of resignation on Friday, Mr Johns told Leighton’s board that relations with Hochtief had completely broken down and he could no longer operate as an independent chairman.

The flashpoint came when, according to Mr Johns, Hochtief executive chairman Marcelino Fernandez Verdes, a long-serving ACS executive and recent addition to Leighton’s board, interfered with the appointment of a new independent director.

‘‘These actions gave rise to serious concerns that Hochtief no longer supported the important principle of Board independence,’’ Mr Johns wrote.

All five independent Leighton directors, including Paula Dwyer and stalwart Robert Humphris penned a last-ditch protest to Mr Verdes after he privately requested Mr Johns step down.

The independents also requested a special board meeting to be held on March 13, but Hochtief’s representatives on Leighton’s board refused to attend. Finally, they wrote a letter asking Hochtief to maintain Leighton’s independence, which it had enjoyed since 2000 through a series of corporate governance protocols.

‘‘Hochtief provided a wholly unsatisfactory response to this letter, uncommittal to the core issue of Hochtief’s support of the corporate governance protocols,’’ Mr Johns said. This culminated in the resignations on Friday.

Mr Johns wanted the full correspondence between him and Hochtief to be disclosed to the stock exchange in the interests of full continuous disclosure.

But a stock exchange announcement on Friday merely said the three directors had resigned ‘‘following what

they perceive to be a breakdown in relations with the major shareholder Hochtief and their view that Hochtief no longer supports an independent Board at Leighton’’.

Leighton said the board would convene at the earliest possible time to elect a new chairman, and the company would make a ‘‘fuller statement in due course’’.

Shares in Leighton plunged as much as 10 per cent during Friday’s trade, abruptly ending a recent resurgence following a solid set of financial results announced last month, and drawing scrutiny from the Australian Securities and Investments Commission and the stock exchange as to whether the contractor had fully complied with its continuous disclosure obligations.

‘‘When three directors resign in protest, it suggests that Hochtief is exerting undue influence on the workings of the board,’’ Daniel Smith of ISS Governance said.

Hochtief has a 54 per cent stake in Leighton, but has historically allowed a great deal of autonomy in how Leighton operates its business, particularly when the Australian group was at its peak. Even now, Hochtief’s stake in Leighton accounts for almost 90 per cent of its entire market capitalisation.

Despite best efforts by Hochtief to fend off the ACS offensive, the Spanish group has amassed a majority 54 per cent stake and has made extensive management changes at Hochtief since 2011, including replacing its chief executive. ACS, via Hochtief, has the right to appoint four Leighton directors.

Friday’s events appears to make a mockery of the much-vaunted ‘‘corporate governance framework’’ agreement with ACS in November 2010, which Leighton said would ‘‘enshrine’’ arrangements specifically designed to protect its independence, and the interests of the company’s minority shareholders.

“We believe that ACS’s agreement to provide certain governance undertakings should protect and enhance value for Leighton’s many stakeholders and specifically its minority shareholders,” said Mr Mortimer.

But this preceded a turbulent period for Leighton which saw its share price fall around 60 per cent in the next year on the back of hefty cost blow-outs and project delays on several key projects – further straining relations between the Australian group and their new Spanish parent.